Colorado's New Rule 1.5(h) Handling Flat Fees, 1119 COBJ, Vol. 48, No. 10 Pg. 36

• Author: BRYONM. LARGE, J.
• Position: Vol. 48, 10 [Page 36]

48 Colo.Law. 36

Colorado's New Rule 1.5(h) Handling Flat Fees

Vol. 48, No. 10 [Page 36]

Colorado Lawyer

November, 2019

FEATURE PROFESSIONAL CONDUCT AND LEGAL ETHICS

BRYONM. LARGE, J.

On January 31,2019 the Colorado Supreme Court adopted new Colorado Rule of Professional Conduct 1.5(h) regarding flat fee arrangements. This article addresses the new rule's requirements.

On January 31, 2019 the Colorado Supreme Court published an amendment to Rule 1.5 of the Colorado Rules of Professional Conduct (Colo. RPC or Rules), adding new subsection (h) to address flat fees. New Rule 1.5(h) defines a flat fee as "a fee for specified legal services for which the client agrees to pay a fixed amount, regardless of the time or effort involved."¹ Rule 1.5(h) became effective immediately for all flat fee agreements entered into on or after January 31, 2019.²

Lawyers use flat fee billing for various reasons. These include an evolving marketplace that expects a set price, predictability of costs for clients, and the lawyer's unending desire to avoid tracking time. However, this model has its drawbacks, including establishing reasonable compensation, given the unpredictability of litigation; changing case needs; and maintaining a quality work product while striving to work more efficiently. A significant area of concern is how lawyers handle advance retainers for flat fees. New Rule 1.5(h) instructs lawyers on how to handle these retainers.

Rule 1.5's Basis in Case Law

For the most part, Rule 1.5(h) codifies Colorado case law on how lawyers should handle flat fees, notably the Colorado Supreme Court opinions in In re Sather^[3] and Matter of Gilbert,⁴ which address flat fees and advance retainers. Before Rule 1.5(h)'s adoption, flat fee arrangements were analyzed under the Sather and Gilbert framework. Rule 1.5(h) built on this jurisprudence.

In the 2000 Sather case, the Court addressed concerns about handling client fees. First, the Court explained and reaffirmed that lawyers should segregate their clients' money from their own in a trust account.⁵ Next, the Court held "that an attorney earns fees only by conferring a benefit on or performing a legal service for the client."⁶ Finally, the Court stated that fees are always subject to a refund under certain conditions, and characterizing an advance retainer as "nonrefundable" could unreasonably deter clients from exercising their right to a refund.⁷ In clarifying the handling of fees, the Court expressly held that a lawyer cannot enter into a nonrefundable retainer or fee agreement.^[8] These concepts were codified in Rules 1.5(f) and (g).

In Gilbert, the Court returned to the discussion of flat fees, this time in the context of what happens to the flat fee when the representation ends prematurely. The lawyer in Gilbert agreed to represent a married couple in an immigration matter for a flat fee of $3,550.^[9] The agreement did not contain any benchmarks or milestones stating when portions of the fee were to be earned¹⁰ and did not explain what payment the lawyer would receive if the representation ended prematurely.¹¹ However, the lawyer's fee schedule listed an hourly rate of $250 for miscellaneous work.¹²

The clients terminated the lawyer's representation before it concluded, and they requested a partial refund. The Court affirmed that the lawyer in Gilbert could recover her legal fees in quantum meruit by charging the clients by the hour for the work completed and refunding...